VviewpointsDOI: 10.1145/2240236.2240249economic andBusiness dimensionsthe Internet Is everywhere,but the Payoff Is not

AMId the raPId diffu- sion of the Internet in the 1990s, many media commentators, invest- ment analysts, and poli-cymakers hoped the Internet would
erase geographic and socioeconomic
boundaries and improve the comparative economic performance in less
prosperous regions.

The optimism had some merit.
The economic tide was rising during
this time, with everyone’s fortunes
rising. The best-sellers The Death of
Distance1 and The World Is Flat4 were
just two of the books that espoused
that rosy view. The “productivity paradox”—the question of whether ubiquitous use of computers would ever produce economic growth—disappeared
among professional economists. Between 1995 and 2000 the economic
tide was rising, as wages increased by
20% on average across the U.S.

Note the words “on average.” What
effect did the growth of the commercial Internet have on the economic
performance of different locations
in the U.S. economy? Our analysis
published in the American Economic
Review suggests the Internet is widespread, but its economic payoffs are
not even. 3

Misplaced optimismWe conducted a multiyear study todocument how businesses adopted,deployed, and improved the Internetfrom 1995 to 2000, a period of rapidinitial investment by business. In priorresearch, 2 we learned to look carefullyat the specific type of investment. Wedistinguished between rapidly dif-fusing email and Web browsing andmore advanced applications. Suchadvanced Internet applications wereenabling productivity increases bylowering costs of communication be-tween suppliers and customers overlong distances, and these applicationsrequired skilled labor to implementand operate. Diffusion of these appli-cations shaped productivity for manyenterprises.

the Payoff Puzzle

Our more recent study combined information on business Internet usage
with U.S. national-level wage data. We
studied from the period 1995 to 2000
using several large datasets, including the Quarterly Census of Employment and Wages that gives county-level information on average weekly
wages and employment, and the Harte
Hanks Market Intelligence Computer
Intelligence Technology Database of
survey information about how firms
use the Internet. In total, we included
relevant data from over 85,000 private
establishments with more than 100
employees each.

We found that business adoption
of Internet technologies correlated
with wage and employment growth
in only 163 of the over 3,000 counties
in the U.S. All of these counties had
populations above 150,000 and were
in the top quarter of income and edu-